European Union: The Effect Of The Eurozone Crisis On Commercial Contracts

Last Updated: 20 February 2012
Article by Bethan Davies and Mark Alsop


Even six months ago, the possibility of the eurozone fracturing was said to be remote. Today, the prospect of a default by a eurozone country followed by its exit from the eurozone is openly discussed. As a result, businesses are taking seriously the need to assess the impact that such an exit and its potentially unquantifiable consequences may have on them.

This note sets out:

  • Some of the consequences of a eurozone fracture on commercial contracts;
  • Some thoughts as to what can be done now to improve the position of existing contracts; and
  • Provisions that should be considered for inclusion in new contracts.

Eurozone Fracture

If the eurozone fractures, various scenarios can be envisaged, including the following:

  • A eurozone member abandons the euro as its currency and adopts a new currency; or
  • The eurozone itself disintegrates and the euro becomes obsolete as eurozone members revert to national currencies; or
  • The eurozone restructures, such that one or more economically "weaker" members leave and the remaining members re-denominate the euro, replacing it with a "new euro".

Legally, it is not currently possible for a country in the eurozone to abandon the euro unilaterally (nor is it possible for a country to be expelled). If a eurozone country wishes to withdraw, it will have to do so:

  • Unilaterally in breach of treaty (being the Treaty on the Functioning of the European Union); or
  • On some agreed basis by way of an amendment to the Treaty; or
  • By leaving the EU altogether (which is permitted under the Treaty on European Union).

For the purposes of this note, we will assume that any fracture will be by agreement and that the country leaving the eurozone will remain a member of the EU (and thus a party to the treaties that govern the relationship between EU countries). The euro will continue to exist as the lawful currency of those EU member states in the eurozone. If a country leaves the EU, the legal consequences are considerably harder to predict.

Effect of a eurozone fracture on currencies

If a new currency is created by a weaker country, the conversion rate set by the government of the country (with or without the agreement of the rest of the eurozone) is likely to leave the new currency weaker than the euro. If a stronger country were to leave the eurozone, its new currency would probably appreciate.

Any government deciding to leave the eurozone may decide at the same time to impose capital/exchange controls either to prevent a flight to stronger currencies or, for a stronger country and currency, to prevent inflows of capital making the new currency too strong.

Effect of a eurozone fracture on commercial contracts

The main effect on commercial contracts of a country leaving the eurozone will be on the payment obligations where the euro has been replaced with an alternate currency in the country of one of the parties.

We will take as an example a contract under which a UK company supplies euro-priced goods to a customer in a weaker eurozone country, such as Greece, that leaves the euro and adopts a new currency. It is assumed that, as part of the process, Greece will redenominate euro-denominated contracts, such that the amount payable by the customer becomes priced in the new Greek currency at a fixed rate. This rate is likely to be higher (i.e. stronger) than the rate which the markets would otherwise determine.

Exchange losses

Depreciation of the new Greek currency against the euro (and other currencies such as sterling) will have certain consequences:

One of the parties will incur an exchange loss

  • If the euro amount payable under the contract becomes priced in the new Greek currency, the customer will pay what is due as far as it is concerned, but the amount received by the supplier in terms of euros (converted from the new Greek currency at the market rate on the date of payment) will be less than before. If the amount remains priced in euros, the customer will have to pay more in the new local currency for the supplier to receive the same amount in euros.
  • Where the euro is specified as the currency of payment, whether the customer is bound to pay in euros or the new currency is not usually a question of the law governing the contract, but a question of the law governing the currency. Under the rule of law called "lex monetae", a payment obligation in the currency of a particular country is an obligation to pay that amount in the legal tender of that country at the time of payment. This gives rise to a problem where the euro is stated to be the currency of payment. Is the lex monetae that of the continuing eurozone countries (which would mean payment in euros) or that of the leaving country (which would mean payment in the new currency)?
  • The answer will depend on whether the reference to the "euro" in the contract is intended to be (i) the international currency known as the euro or (ii) the national currency for the time being of the country of the customer. If the contract is not clear on the point (and few contracts will be), the answer will depend on the country with which the contract has the closest connection, the considerations for which will include the governing law of the contract, the place of payment and the courts with jurisdiction. For example, in an English law contract with the place of payment in England, "euros" will probably be interpreted to mean the international currency; in a Greek law contract with the place of payment in Greece, "euros" might well be taken to be the national currency of Greece from time to time; i.e. the "new" drachma.
  • There may be differences in approach depending on whether English or Greek courts have jurisdiction. Even if both the Greek courts (which would be bound to apply Greek law and give effect to the re-denomination of its currency) and English courts agreed that Greek law was the lex monetae to be applied, the English courts might not give effect to it on public policy grounds if Greece had left the eurozone unilaterally in breach of its treaty obligations.

The contract will continue as is, in the absence of any express provision

Unless there is a specific provision to the contrary, an exchange loss will not, under English law, usually be:

  • A frustrating event (which would otherwise put an end to the contract);
  • A force majeure event (which would otherwise, initially at least, suspend the obligation to pay); or
  • A breach of contract or other event giving rise to a right of termination. The English courts have long held that changes in economic circumstances are simply risk factors for the parties and do not entitle the parties to be excused from contractual performance. However, termination might be available to a party if it were the beneficiary of a "material adverse change" representation or continuing representations by the other party - for instance, that performance by it would be lawful.
  • The exchange rate differential may make it difficult for the customer to afford the revised payments. The customer then becomes a credit risk.

Capital controls, new laws and other consequences

Even if the currency of payment is held to be the international currency of euros, there may be a number of further problems for the supplier:

  • The leaving country may impose capital/exchange controls or may re-denominate all debts owed by its nationals into the new local currency, making it impossible for the customer to meet its obligation to pay in euros.
    Failure by the customer could amount to a breach of contract, entitling the supplier to terminate and to claim as damages any exchange losses. An English court might well award damages, especially if the Greek government had acted in breach of treaty. A Greek court would probably not do so, being likely to give effect to the acts of the Greek government in such circumstances.
  • Any legislation that prevented (as opposed to hindered) payment may amount to:
    • Frustration, in which case the contract would be at an end; or
    • A force majeure event, in which case the customer's obligation to pay would at least be suspended. Increased difficulty in performance will only be a force majeure event if the contract says that it is.
  • The leaving country or the remaining eurozone countries may make other changes to the law that prevent or hinder performance (e.g. export controls). These again might frustrate or suspend the contract.
  • Even if the withdrawal etc does not give rise directly to termination of the contract, cross default clauses could apply to terminate it if connected contracts are terminated.
  • The enforcement of guarantees and security will require consideration.

Practical steps to be taken

What to do about existing contracts?

There are some steps that a supplier can take to help protect its position should its customer be based in a country that may leave the eurozone:

  • Review all relevant contracts now in light of the possible risks and outcomes, so that the contractual position is at least known to the best possible extent.
  • Determine the preferred commercial position.
  • Discuss the issues with the other party so that commercial life under the contract can continue.
  • Tighten credit terms, e.g. require deposits, shorten payment and debt collection times, increase interest for late payment, impose stricter retention of title.
  • Increase credit security, e.g. letters of credit, bank and other guarantees, asset security.
  • Ship in smaller quantities.
  • Consider using local costs as a hedge, so that counter-balancing costs are also incurred in the leaving country.
  • Try to agree amendments to the contract along the lines of those advised for new contracts below.

What to do about new contracts?

When negotiating a new contract with a customer who is in one of the more at risk eurozone countries, a supplier should consider one or more of the following steps:

  • Try to contract instead with another group company based in a stronger eurozone country or outside the eurozone (commercial considerations may make that impracticable).
  • Be specific about the currency of payment. It may be better to have payment in a currency other than euros, but if it has to be euros, define "euro" as the international currency known as the euro, not the domestic currency of the weaker eurozone country from time to time. Make payment in any other currency a breach of contract. If it is intended that payment should be made in the currency of the weaker eurozone country, the exchange rate for any new currency will be unknown unless and until withdrawal occurs, so, whatever assumptions are made, both parties will be taking some degree of exchange rate risk.
  • Make the place of payment outside a weaker eurozone country.
  • Do not have the law of the weaker country as governing law and do not give its courts jurisdiction to hear disputes.
  • Include a right of termination specifically covering the introduction of a new currency of payment or other consequences of the withdrawal of the weaker eurozone country from the euro.
  • Include a material adverse change clause covering the consequences of withdrawal.
  • Include non-performance resulting from withdrawal from the eurozone in the list of force majeure events (this may alternatively or also be desired by the customer).
  • Adjust the contract price or obtain an indemnity for any exchange losses resulting from withdrawal. Currency losses could be shared between the parties.
  • Restrict the right to assign (and possibly to subcontract), if assignment (or subcontracting) may be to a company in a weaker eurozone country.
  • Obtain a parent company or other guarantee, preferably from a person not based in a weaker eurozone country. Or seek to obtain security situated in a county that is not a weaker eurozone country.
  • Include an obligation to consult in good faith. This may not be legally binding, but it will show an intention that the parties want to work together to solve problems.

If the supplier is based in the weaker eurozone country, many of the above arguments will be reversed. For instance, if goods or services are being bought from a supplier based in a weaker eurozone country, the customer will want to pay in the new currency following conversion – if it is not able to, the prices paid by the customer will be undercut by other customers of the supplier who are able to pay in the new currency.

Even then there will be risks associated with

  • Overarching legislation passed by the EU, eurozone or relevant government;
  • Enforcement;
  • Capital and export controls; and
  • The customer's ability to pay.

The analysis will be similar, but the issues are likely to be far more complex (and may be the subject of specific legislation) if the eurozone as a whole fractures into separate national currencies.

We suggest that you carefully monitor developments and publications over the coming weeks and months. Should you have any questions regarding how you could be impacted, please contact us directly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.